A rchive Date
[ 16-10-2000 ]
Category
[ International Relations ]
sub-Categoy
[ Canada ]
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[Tax cuts bound to benefit the rich
By MICHAEL JENKINSON
Edmonton Sun
October 16, 2000
The Canadian Alliance's retreat on its single-rate tax plan once again exposes the political problems posed by Canada's tax system.
Namely, that Canada's steeply progressive tax system has made it virtually impossible to design a broad tax cut which does not "favour the rich" because the "rich" pay most of the tax in the first place.
Favouring the rich was, after all, the biggest criticism of the Alliance's 17% single-rate plan. Joe is making $30,000 and gets a $500 tax cut under the original Alliance scheme, while Horatio pulls in $300,000 and receives a $35,700 tax cut. This, according to the Liberals and other critics, is unfair.
The Alliance amended the plan to create two tax brackets, 17% up to $100,000 and 25% beyond that. Which would leave Joe exactly where he was with a $500 tax cut, while Horatio would now get a $20,500 tax cut.
It would be a good bet that critics are likely not going to find that any more fair despite the obvious math. Horatio under our current tax system would be paying about $85,000 in federal taxes. Under the Alliance's amended plan he'd be paying $64,500 to Ottawa.
Not to mention that even if Joe got a 100% tax cut and paid no federal taxes at all, he'd still only get an extra $3,400 or so, because that was all he was paying in the first place.
Any kind of across-the-board tax cut will always result in the "rich" getting larger dollar amounts in savings simply because they pay larger amounts of tax in the first place.
Which is the other big problem the Alliance ran in to in trying to redesign the tax system: Those "rich" people pay the lion's share of taxes already, yet number very few.
If you take the raw numbers (based on 1997 tax data) you'll find that people making $50,000 and more pay about 58% of total federal income tax. Those making less than $50,000 pay 42% of the income tax.
But there are way more people under $50,000 than over. In fact, income earners making less than $50,000 account for 81% of total tax filers in this country.
The flip-side of that, of course, is that just 19% of tax filers account for 58% of the total federal income tax collection.
Which leaves any political party trying to offer broad-based tax relief in a potential political pickle.
Aiding small minority
Not only will they be criticized for helping the "rich" (even though Canada's top tax bracket of 29% kicks in at around $60,000) but they're also open to the charge that they're aiding a small minority of supposedly wealthy taxpayers to boot.
And because that small minority pays the largest chunk of federal income taxes, cutting taxes for anyone making more than $50,000 has the government choking itself off from its widest revenue pipe.
This explains why in the last federal budget the Liberals cut the middle tax bracket (which hits income between about $30,000 and $60,000) from 26% to 24% and didn't touch the 29% bracket: The middle-income bracket covers the largest number of taxpayers but would on balance probably cost the government less money than fiddling with the 29% bracket.
Plus the Liberals can claim they're helping the middle class and not the "rich."
In short, the Canadian tax system has been designed with a built-in bias against any kind of substantial tax reform.
The 81% of Canadian taxpayers who make less than $50,000 have the biggest electoral clout at the ballot box and have a vested interest in making sure that the government does not cut the taxes of the other 19% who make more than $50,000 because those 19% pay for most of the social programs and government services enjoyed by the 81%.
While it doesn't make the Canadian Alliance's retreat on the flat tax any more forgivable, as Canada desperately needs big tax relief, it does make it a bit more understandable.
Michael Jenkinson can be reached by e-mail at mj@the-newsroom.com
 World Fact Book (CIA)]]
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